$10.5B combined loss on fuel cost for Delta, Northwest (6:50 a.m.)

Wednesday

Apr 23, 2008 at 6:49 AM

ATLANTA (AP) — Delta Air Lines Inc., the nation’s third-largest carrier, said today its loss widened in the first quarter to a whopping $6.39 billion because of soaring fuel prices and the steep decline in the company’s market value.

ATLANTA (AP) — Delta Air Lines Inc., the nation’s third-largest carrier, said today its loss widened in the first quarter to a whopping $6.39 billion because of soaring fuel prices and the steep decline in the company’s market value.

Northwest Airlines, which will combine with Delta to create the world’s largest airline, reported a $4.1 billion loss in the first quarter.

The Atlanta-based company said the loss is equivalent to $16.15 a share. That compares with a loss of $130 million that Delta reported in the year-ago January-March quarter, when it was still in bankruptcy.

Excluding special items, primarily a $6.1 billion non-cash charge relating to the decline in Delta’s market value due to sustained record fuel prices, the airline lost $274 million, or 69 cents a share, in the first quarter.

Revenue in the quarter rose to $4.77 billion, compared with $4.24 billion recorded in the same period a year ago. Delta shares fell 15 cents to $6.65 in premarket trading, setting a new 52-week low.

Delta said its first-quarter loss before special items was driven by a $585 million year-over-year increase in the cost of fuel.

When it exited Chapter 11 protection, Delta projected its stock would be worth $9.4 billion to $12 billion in all, but that was assuming the price of crude would be at $70 per barrel.

Gas and oil prices pushed further into record high territory Tuesday, with crude nearing $120 a barrel. Retail gas reached a national average of $3.51 a gallon for the first time. Delta’s current market value is roughly $2.6 billion, based on 395.6 million shares outstanding, which include shares not yet distributed to some creditors from its bankruptcy case.

Delta announced last week that it would acquire Northwest Airlines Corp. in a stock-swap deal that, if approved by regulators and shareholders, will create world’s largest airline.

“Our need to respond to the pressures of dramatically rising fuel costs and a softening U.S. economy drove us to take a closer look at all options to protect Delta’s future,” Chief Executive Richard Anderson said in a statement. “The merger with Northwest will create an airline with the size, scale and global presence to weather economic downturns and compete long-term in the global marketplace.”

The airlines are trying to sell the deal to the public, employees, federal regulators and Wall Street. So far, investors appear unconvinced.

The stock declines since the deal was announced have shaved roughly $1.3 billion off the value of the deal to Northwest shareholders, who would get 1.25 Delta shares for every Northwest share they own.

Anderson will head the combined airline, which would be called Delta and be based in Atlanta.

The carriers have said they have no current plans to cut more U.S. flights beyond what they have disclosed separately. Analysts have said that limits the cost savings or higher fares the airlines could reap from the deal.

The companies haven’t ruled out further capacity cuts in the future if fuel prices continue to rise. Delta reiterated that sentiment today, saying it is continuing to evaluate the fuel and demand environment “and will make proactive changes quickly if economic conditions warrant.”

As of March 31, Delta said it had $3.6 billion in unrestricted liquidity, including $1 billion available under a revolving credit line.